OUTLOOK ’18: European players eye impact of global shifts on phenol and acetone conditions

LONDON (ICIS)–European phenol and acetone market players continue to cite differing expectations for the year ahead, on the back of global shifts in the production landscape and anticipated trade flows.

Demand for both products is, overall, expected to be broadly stable in Europe, but players continue to debate the future of production and supply for Europe.

The US acetone market is set to face tighter supply and pressure to increase import volumes in 2018 because of an impending production cutback in January.

The cutback is coming at Shell Chemical’s Phenol 3 unit in Deer Park, Texas, in mid-January. The unit has an acetone capacity of 144,000 tonnes/year.

Meanwhile, US domestic supply of phenol is expected to remain balanced with consumption levels for 2018, as other phenol producers could mitigate the material lost in the cutback.

Sources said several other phenol producers have room to increase operating rates, which should prevent the US market from moving to a tight position.

“Most of the phenol we are losing in 2018 was going to exports anyways,” a US market participant said.

The cutback in acetone production will, however, keep the market tight throughout most of 2018, sources said, as the US was supply was snug throughout 2017.

This will necessitate imported volumes from Asia to increase, but sources in the US market said that is likely to create pricing volatility, which could see import levels fluctuate.

Meanwhile, China’s phenol and acetone prices in the domestic market are expected to stay high in 2018 on the back of strong demand from some the downstream industries, offsetting a planned increase in supply.

In Europe, players have noted this potential draw of import volumes away from the market, but have also spoken of increased offers of material from other regions, in particular Saudi Arabia going into 2018.

Overall, the impact from these various shifts in global production and trade flows are not anticipated to result in significant changes in the European market.

During 2018 annual adder negotiations players on both the buy and sell side of the market spoke of a largely steady outlook for the year ahead. Some players highlighted that both sides were keen to maintain security of supply and market share, respectively, and many players were seeking to maintain much of the status quo of the previous year.

That said, at the end of 2017, there was an increased interest in European phenol export volumes, and free on board (FOB) Rotterdam prices shot up to €1,080-1,100/tonne, with Europe seen as the most balanced market globally.

Sources have commented that while this could persist in the early weeks and months of 2018, this is thought to be a more short-term reaction to market changes, and not something that will become a more permanent feature of the market beyond the first quarter at most.

In the acetone market, however, players continue to weigh the impact of the various changes in the global production landscape in 2018.

Nearly 90% of acetone is produced from cumene, from which phenol is also produced, which itself is made by the reaction of propylene and benzene in a phosphoric acid-based or zeolite catalyst. About 0.62 tonnes of acetone is produced with each tonne of phenol made.

Some players argue that the increased demand for acetone could draw import volumes away from the European acetone market, tightening regional conditions.

Meanwhile, other players have commented that this shift in phenol production could encourage European producers to ramp up operating rates. If this happens, it could see the acetone market lengthen in Europe.

One buyer of acetone recently described the market as ‘pretty cautious… some say with new capacity [the] market should stay well supplied maybe get even long, another supplier said he would be cautious with that because [we] need to wait to see how much of imports need to go to US.’

Overall, the market remains broadly in a wait and see mode. Market participants continue to have expectations on what 2018 holds for the markets, but as yet a clear consensus on how Europe will fair amongst these global shifts is unclear.

Phenol’s main downstream use is in bisphenol A (BPA). Other primary uses for phenol include use in phenolic resins and caprolactam (capro), as well as alkylphenols, aniline and adipic acid.

Acetone is used in two main applications: the manufacture of methyl methacrylate (MMA) and BPA. Acetone also goes into solvent applications largely used in pharmaceuticals manufacturing and is used to make a number of chemical intermediates, such as methyl isobutyl ketone (MIBK), isophorone and diacetone alcohol/hexylene glycol.

Additional reporting by John Dietrich and Yoyo Liu